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Comment by carlsborg | Hacker News Reader

I suspect the following is built into valuations of many software companies with subscription revenue models: they can reduce headcount dramatically and keep a relatively tiny headcount of staff around to sustain the existing recurring revenue and be highly profitable even in a slowing economy. For example how many people would MongoDB, with close to a billion dollars of annual revenue, need to keep the lights on, assuming zero new feature development, sales or marketing? The software is already sold and integral to the enterprise projects that use it, and in the enterprise migration to a new vendor is often a considerable project in itself.

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I think this is not as straightforward as you make it sound.

1. Often the way companies are structured requires specific teams and processes to exist and unwinding that is not easy.

2. It can be very hard to identify which people are actually critical. If you get it wrong it’s a big problem.

3. Additionally, firing a large percentage of employees will create a very negative feeling in the remainder so they might leave as well or their work quality will suffer.

4. Customers may lose faith in the business as a result and switch. Something like Atlassian has many competitors.

Are there any specific examples of this being done successfully?

AirBNB? They were flailing at the beginning of covid, taking a massive 2 billion loan at 10% APR to maintain cash flow. They laid off a substantial portion of their workforce, hunkered down, and it paid off - they went on to successfully IPO a year later, still in the pandemic.

I've worked (as in actively worked) in a couple restructuring efforts, and it went fine, but it wasn't on tech, it was on education. It went massively well. The universities were financially healthier afterwards, and all the remaining employees had safer (union!) jobs.

The trick for this being successful is most of the time by challenging the processes themselves, rather than the employees. Employees aren't useless, but process are. The reason you need 500 people rather than 250 or 100 or 50 to do something might be simply because you said so somewhere or sometime.

So, companies should review and change processes BEFORE reducing headcount. But alas, companies don't ever do it, because it requires introspection, egolessness and actual work, the sorta stuff that is rare in upper management.

> because it requires introspection, egolessness and actual work, the sorta stuff that is rare in upper management

It also may reduce the need for middle and upper management.

In fact, if you give people some confidence that they won't be fire and instead you will use their work on some more valuable action, ICs will line up on your door with ideas on how to cut their processes. But management won't.

Exactly. In the two restructurings I worked there were lots of people that everyone knew were fundamental to the workings of the institutions. Those people were confident they would stay, and ended up getting amazing raises afterwards so they could continue. Most of the complaints were from teachers who were there for years but were still working only 4-8 hours week, or people that had purely bureaucratic functions.

Amusingly, the best "firing" in one of those was the Dean of the University that had a seven-figure salary. The board replaced him with an administrator and with someone else from the faculty, and both were more qualified, but costed 1/10 of the price (still a huge raise for them).

The thing is, a high growth company like MongoDB doesn't need to fire a single engineer to turn highly profitable. They grew revenue 57% YoY last quarter and spent 52.6% of revenue on sales & marketing.

I just don't see companies being able to justify subscription revenue models in the coming downturn. Many opt to acquire software for a fixed price if they are financially sound, those who cannot, aren't going to be able to keep paying subscription fees methinks, i could be wrong.

Wouldn’t companies switch to a one time purchase or open source model if mongo stopped developing new features? Why would they continue paying a subscription for a product that doesn’t improve when money is tight? Especially when there are plenty of mongo competitors.

Just take a look at the portfolio of companies like Idera. That's their business model. Buy products "in the long tail" and squeeze them dry.

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